New precatory crisis rekindles investors’ concern with government public accounts
The main indicators of financial market Brazil closed on a high this Tuesday, 3rd, affected by the fiscal risk generated by the recent crisis of the precatory and with investors waiting for the interest rate to be set by the Monetary Policy Committee (Copom), which will be released this Wednesday, 4. The dollar closed with a high of 0.53%, quoted at R$ 5,193. The exchange rate reached the maximum of R$ 5.275, while the minimum did not exceed R$ 5.176. The currency ended the eve with a drop of 0.86%, to R$ 5.165. Ignoring internal noises and driven by international optimism, the Ibovespa, a reference on the Brazilian Stock Exchange, closed the day on the positive side, up 0.87%, to 123,576 points. The trading session this Monday, 2, ended up 0.59%, at 122,515 points.
The risk of uncontrolled public accounts has returned to the market’s radar with the new crisis involving precatório, as the federal debts are called, which are no longer suitable for judicial recourse. The Minister of Economy, Paulo Guedes, stated that the full payment of precatory2022 would paralyze the entire public machine. The estimated amount for next year is R$ 90 billion, 65% more than the R$ 54 billion planned for 2021. The government works together with the Legislative and the Judiciary to reduce these payments. The main strategy is the formulation of a Proposal for Amendment to the Constitution (PEC) that allows for the division of values and the installment of part of the debts. The text, which already has a ready-made draft, advises that the precatório of small value, estimated at up to R$ 66,000, be paid according to the schedule. According to Guedes, these requests constitute the majority of the approximately three million existing court orders. “The most vulnerable will be entirely preserved, everyone who has a precatory of up to R$ 66,000 receives it instantly, nothing changes.”
The superprecatório, which includes liabilities above R$ 66 million, will be divided into a down payment of 15% of the value and nine equal installments. The bill also provides for the creation of a fund with resources originating from privatization and disposal of federal assets, among other forms of revenue, to pay off this more costly portion. According to Guedes, this schedule removes the idea that the federal government is preparing a debt default. “You see many state companies to be sold. If there are many funds in the private sector that buy these rights, let this be used to leverage the transformation of the Brazilian State”, he said. “These rights are far from being defaults, they are bonds, a requirement of the Brazilian government. I must, I don’t deny it, I’ll pay as soon as I can.” The government also foresees the indexation of a limit for the payment of precatório each year, of approximately 2.5% of the current net revenue. According to the minister’s accounts, with the measure, it will be possible to pay annually all debts below R$ 450,000. “We assume that within this limit of 2.5%, that this can be paid for all those of small value, which it certainly does, we have already done the math, and there is still room to pay more. We are going up in ascending order, up to R$ 70 thousand, R$ 100 thousand, R$ 150 thousand, R$ 200 thousand. We made all the calculations and we believe that all sentences lower than R$ 450,000 will be paid in cash, at least in the next few years”, he said.
The market is also awaiting the decision of the Central Bank for the Selic, currently at 4.25% per year. The recent acceleration of the IPCA makes the market bet on an increase of 1 percentage point, raising the Selic to 5.25%. At the last meeting, in June, the collegiate signaled that it should repeat the dose of 0.75 percentage point, but “left the door open” for a more robust increase. The financial market once again raised the outlook for the Broad Consumer Price Index (IPCA), the official meter of inflation Brazilian. This was the 17th consecutive week that the estimate has been revised upwards. In the last edition, the forecast indicated an increase of 6.56%. The BC pursues the inflation target of 3.75%, with a margin of 1.5 percentage points up or down, that is, between 2.25% and 5.25%. The preview of the index was 0.72% in July, the highest value since 2004, and accumulated 8.59% in the last 12 months. Market analysts also revised upward the expectation for the 2022 IPCA, from 3.80% to 3.81%. The target for the BC next year is 3.50%, with a variation between 2% and 5%. Despite the new advance in inflation expectations, the market maintained the Selic forecast, the BC’s main tool to contain price variation, at 7% per year in 2021 and 2022.